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Stocks, Dollar, Yields Rally On Mnuchin Tax Cut Comments

In a day full of upside catalyst for the reflation trade including the strong TIPS auction, the speculation that the Obamacare repeal effort is back on track, and perhaps best of all the absence of hard data (today's Philly Fed "soft data" was, well, quite soft), the dollar, the S&P and Treasury yields all rose, after Treasury Secretary Steven Mnuchin said that "we are close to bring forward major tax reform", refuting speculation that it may be delayed into 2018.

In kneejerk reaction to the Mnuchin seemingly confident comments, the Bloomberg dollar index, BBDXY, erased its intraday drop to trade little changed while the USDJPY pressed to new session highs.

Speaking at a Institute of International Finance event in Washington, Mnuchin said that the Trump administration’s priority is creating growth in U.S. economy, international goal is for “fair and balanced” trade.

He noted that two main ways to create economic growth are tax reform and regulatory relief. He added that regulatory reform aims to ensure banks can lend and taxpayers aren’t at risk.

Regarding tax reform, Mnuchin said that the objective is making business taxes competitive and bringing back trillions of dollars to invest: "We hope this won’t take until the end of the year, it will be sweeping."

Mnuchin also said that “the tax plan will pay for itself” with growth and the admininstration fundamentally believes in dynamic scoring, although he did not explain just how that would happen aside to note that some cuts in tax rates to be offset with less deductions.

He also said that the administration is looking at simpler tax code, with fewer tax brackets and less deductions concluding that some aspects of border-adjusted tax we like, some we dislike, and finally - in what may be the final dagger in the heart of the BAT - said he remains concerned about border tax impact on currency. Which, incidentally, was the weakest point in Mnuchin's comments as it is very likely that members of Congress, and especially Paul Ryan, will have different plans on tax reform.

But perhaps the most interesting comment from Mnuchin was that he is confident the nation’s debt ceiling will be raised and hopeful it happens before summer, and that the US will keep its AAA credit rating. We assume this excludes S&P's infamous "less than AAA" rating...